SAC Capital Advisors will likely face Securities and Exchange Commission fraud charges stemming from alleged insider-trading by a former portfolio manager, and the regulator may go after firm founder Steven Cohen, as well.

SAC told clients that it has received a Wells notice from the SEC, indicating that the agency is poised to bring an enforcement action against it. The notice cited fraud and control-person liability for its management of subsidiary CR Intrinsic Investors, the unit where Mathew Martoma, who was arrested last week, worked.

Cohen isn't named in the Wells notice. But Bloomberg News reports that the SEC is considering charging him as well, also for fraud and control-person claims. The latter charge can be brought against managers who do not maintain an adequate system to discourage and catch insider-trading; the SEC would not need to prove that Cohen knew that Martoma's trades were based on non-public information to win such a claim.

SAC received the notice last week, its president, Tom Conheeney, said during a conference call this morning to discuss the Martoma case. Cohen himself opened the call, telling clients that he acted appropriately trading on recommendations from Martoma. SAC has denied any wrongdoing and has said it is cooperating in the investigation.

"We take these matters very seriously," Cohen said.

Conheeney told investors that Cohen had been deposed by the SEC about Martoma earlier this year, and that he had answered the agency's questions. He said the firm was "deeply disturbed" by the charges that Martoma earned SAC $276 million trading on confidential tips about Alzheimers' drug trials, and that if Martoma is guilty, his conduct was "unacceptable." Conheeney also defended SAC's "culture of compliance" and pledged that whatever legal fees are incurred will be covered by Cohen.

Conheeney also said he hoped that investors would still "feel comfortable" keeping their money at SAC after all the facts come out, but that the firm would "understand" if they did not. There was no other talk about redemptions on the call.

Investors were not permitted to ask questions.

Authorities have for years tried to build a case against SAC and Cohen, but while they have succeeded in nabbing several former SAC traders, they have failed to directly link Cohen to allegedly illegal trading until the case against Martoma. While Cohen isn't mentioned by name in either the criminal complaint or the SEC lawsuit against Martoma, he is the person referred to as "Portfolio Manager A" and as the "owner" of the hedge fund that Martoma worked for.

In addition, the Federal Bureau of Investigation sought Martoma's help in building a case against Cohen prior to his arrest last week. Martoma refused to cooperate.

Martoma is the sixth current or former SAC employee to be charged in the government's recent insider-trading crackdown. But while his is the first case tied directly to Cohen, former traders Noah Freeman and Donald Longueuil, who pleaded guilty to insider-trading, suggested trades to Cohen, and Freeman told the FBI that it was understood at SAC "that providing Cohen with your best trading ideas involved providing Cohen with inside information."

More recently, SAC trader Jon Horvath pleaded guilty to insider-trading in a case involving Level Global Investors co-founder Anthony Chiasson, himself a former SAC trader. Horvath's boss, Michael Steinberg, is an unindicted co-conspirator in that case.

SAC was the subject of insider-trading investigations four year ago, two years ago and last year, as well as a Congressional inquiry last year. In addition, the likes of Cohen's ex-wife and Bernard Madoff have accused him of insider-trading, and in 2010, an extortionist rabbi was convicted of targeting SAC by claiming a congregant had evidence of the crime against the firm.

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information.